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Thursday, July 14, 2016

TRUCKING COMPANY FAILURES

Trucking Company Failures on the Rise

More trucking fleets are going out of business, done in by rising diesel prices and a weak freight market.

More and larger trucking companies are failing as fuel prices rebound and demand for freight services remains muted, a new report says.
In the second quarter, 120 trucking companies with an average fleet size of 17 tractor-trailers halted operations, according to an analysis by researcher Avondale Partners LLC. That’s up from 70 firms with an average fleet size of 14 big rigs in the same quarter a year earlier.
There are more than 168,000 interstate motor carriers with more than 2 million trucks in the U.S., according to the American Trucking Associations, an industry group.
The failures are mainly the result of rising fuel prices and weak demand, said Avondale Managing Director Donald Broughton. When gas prices are falling, truckers are able to charge shippers a fuel surcharge based on the price of gas from previous weeks, while filling up their tanks at lower prices. But when fuel prices are on the rise, the opposite happens, leading to a cash shortfall.
“When conditions are ideal, only the little guys tend to fail. But as conditions start to deteriorate, it tends to affect even larger trucking fleets,” Mr. Broughton said.

More trucking companies fail in the first half of the year because of increased costs associated with weather-related accidents, the costs of heating and idling trucks, and renewing truck registrations.

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Last year, only 310 trucking fleets ceased operations, the lowest number since Avondale started tracking failures in 1986. The average diesel fuel price in 2015 was $2.72 a gallon, its lowest since 2009.
Trucking rates began to decline last year amid weakness in the import market and tepid growth in the consumer economy. But the biggest factor, according to many analysts, has been overcapacity.
The U.S. Department of Transportation reported this week that demand for freight transportation services fell by 0.3% between May 2015 and May 2016. In June, demand for for-hire trucking rose faster than the supply of trucks, only the fourth time in the last 19 months that the market posted such an improvement.
“There aren’t enough loads to fill the trucks that are on the road now,” Mr. Broughton said. “Unless you are one of the ones who failed, you should be cheering [capacity leaving the market]. The industry needs to put capacity and demand back into balance, although 2,000 trucks being removed from the road is not enough.”Write to Robbie Whelan at robbie.whelan@wsj.com